Business Leasing Manual

Lease accounting: lease classification: introduction to detail

As mentioned in BLM00035, accounting standards classify leases as one of two kinds: finance leases and operating leases.

These distinctions are also important for tax purposes.

The way in which leases are classified and accounted for is dependent on which party holds substantially all the risks and rewards of ownership of the asset. There are a number of key concepts that need to be considered when looking at the classification of a lease including